This year hasn’t been a pleasant one for precious metal investors. That much is certain.
Gold is down something fierce…
Since it saw a record price of $1,921/oz. in September of 2011, gold has been on a gradual slide, shedding almost $420 an ounce this year — a drop of 25%.
Famous hedge fund titan John Paulson’s gold fund is down a whopping 63% so far in 2013 — not exactly the kind of returns he’d hoped for when he doubled down on the ancient metal of kings.
And silver has taken an even worse beating.
Silver is down more than $10 an ounce for the year, resulting in a 35% loss. It now sits just under $20.
We still have high hopes for both of these traditional stores of wealth.
However, a pair of hidden metals has quietly beaten the returns of both of the typical precious metals. What’s more, this pair is shaping to do it all over again next year…
I’m talking about the platinum group metals (PGMs): platinum and palladium.
PGMs are the smallest of all the precious metals markets (so small, in fact, that many people don’t even consider platinum and palladium when they invest in precious metals).
Platinum is rarer than both gold and silver. All of the platinum ever mined could fit into your living room.
Palladium is even rarer.
These “hidden metals” are used in the automobile, electronics, dental, and chemical industries.
As the below chart shows, while the traditional precious metals have been slaughtered this year, both platinum and palladium have held up:
If I were looking for stable gains in precious metals right now, I would look no further than the PGMs.
A new study by Johnson Matthey Plc, the world’s largest manufacturer of catalysts to control car emissions, shows demand will exceed supply by the most since 1999.
The deficit in the platinum market is set to increase to 605,000 oz. from 340,000 oz. Palladium’s deficit will narrow 36% to 740,000 ounces.
Both metals are crucial to Johnson Matthey’s business, and cars are finally selling again…
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North American production has risen five years in a row, only the second time since World War II. Some analysts are predicting we may surpass 16.1 million deliveries of new cars and trucks next year, which means we are within arm’s reach of the 17.4 million record.
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China’s automotive market is also on the rise, with production hitting all-time highs. Some analysts are predicting 10%, 20%, and 30% increases year after year. All those extra cars on the road mean China’s atrocious pollution problems will need to be addressed with stricter emissions standards. Palladium and platinum will be crucial in combating pollution in this country.
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Even in Europe, where auto sales have been nothing short of abysmal during the Eurozone crisis, sales are expected to jump 3% next year.
The manufacturing of every one of these automobiles requires either platinum or palladium.
And it isn’t just automotive demand that will drive up prices. Other industrial uses are now requiring more and more platinum and palladium…
New demand from chemical, electrical, and glass industries and record investment will widen the shortage. That strong industrial demand should boost gross platinum demand almost 5% to 8.42 million ounces next year.
Palladium is 2013’s best performing precious metal, and it’s looking sharp heading into 2014.
The supply has dropped 1.5% to 6.43 million ounces — the lowest in over a decade.
Global autocatalyst demand alone is 6.97 million ounces.
From an investment standpoint, palladium is gaining traction in the ETF space. Absa Capital in South Africa is due to launch a new ETF in the coming months. They already run the world’s biggest platinum ETF (NewPlat ETF, traded on the Johannesburg Stock Exchange), which holds 660,000 ounces of platinum. If they acquire anywhere near that percentage of investment market, it will further squeeze supply and increase investor demand.
Johnson Matthey called the investment side of palladium the “wild card” that could really push the palladium market further into deficit.
Finding commodities that are currently in a supply deficit is not easy to do. But with the PGMs, we are staring directly at two. And if these fundamentals continue as forecasted into 2014, there is nowhere for these prices to go but up.
Now, I know these metals simply aren’t as sexy as gold and silver. And you can certainly continue to buy the dips in gold and silver, and hold them until the entire world comes apart at the seams.
We are. And when the house of cards finally comes tumbling down, we have ways to make money hand over fist.
In the meatime, however, if you’d like to round out your moonshot investments in those treasures with a solid, predictable metals play, I’d recommend parking some money in the platinum and palladium market.
